What should you expect from a VAT Inspection?
Each year HMRC selects businesses for inspection based on criteria or risk assessments. Its main purpose is to ensure if business is paying or reclaiming the correct amount of VAT. The frequency depends on how large your business is and whether late or incorrect VAT Return has been submitted.
During the visit, VAT records and other general business records should be prepared (in case thorough investigation will be conducted). Some of the records include, copies of sales invoices, purchase invoices and expense receipts, your VAT account, bank statements, cheque stubs, payroll records, debit and credit notes. They would also request access on your software system if your records are stored digitally.
How to keep VAT records? They must be kept for at least 6 years. It can be on paper or in an electronic form like software programs. Records should be clear and complete. Failure to keep your records in order shall result in a penalty from HMRC.
Usually HMRC investigates accounts up to four years prior to the date of the investigation. Depending on the errors and irregularities being found, investigation can cover up to 20 years back. So better be prepared on the amount of information needed throughout the investigation, the more information you have, the better.
At the end of the inspection, HMRC would note the following:
Ways to improve your VAT record keeping
Any corrections on your VAT account that needs action
If your VAT was overpaid or underpaid
Penalties that you have to pay; they can issue fines up to 30% of the underpaid VAT
You are likely to face penalty if you have:
Deliberate omissions and mistakes
Failure to exercise reasonable care
You can disagree with the tax decision and appeal against it, but it must be done within 30 days and usually comes with a cost. Good thing here, is you can delay your payment on the penalty and will only be required to pay the said amount once your appeal has been settled.
How to prepare for a tax investigation? This would require an enormous amount of time that should be taken step by step. Ensure to have the relevant information, and your records in order. You might consider extra help from Cheylesmore Accountants. We’ll make sure accurate information is provided and will help you assess your accounting processes and suggest any improvements needed.